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by two schools of thought. i will briefly describe each of them and how they approach the evidence in the case. to begin with, there is the church of alone assassin which insists that both lee harvey oswald and jack ruby were low notes that the murdered john kennedy and lee harvey oswald for their personal reasons. on the other side we have the church of the grand conspiracy. there are frequently vague about what they think happened and who was responsible, but there are absolutely convinced that there was a very large conspiracy, usually involving figures within the u.s. government, and a massive cover-up. >> this weekend on c-span3, 49 years later, the questions remain. lone gunman, the mob, the cia, castro. what happened in dallas? the assassination of john f. kennedy, 7:30 p.m. eastern and
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pacific. >> it was in 1982 that judge harold greene issued a decision which led to the breakup of the at&t corp.. that is our topic this week on the "communicators," the impact of that decision 30 years later on the telecommunications. joining us is professor roger noll of stanford, as well as professor jerry hausman of mit, both of whom were involved at various levels in the breakup or the decision to break up at&t. joining us in the washington studio is paul. professor noll, first of all, what with your activity during the breakup of at&t and what led to that decision? >> the antitrust case was formed
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during the johnson administration the late 1960's and a presidential task force called the telecommunications policy task force. it concluded the telecommunications industry, the part in federal jurisdiction, should be competitive and made recommendations both -- mainly to the fcc about how to cause that to happen. then when the knicks and the administration can along, the holdover staff of the antitrust division decided to pursue it antitrust rather than it fcc regulation as the means to introduce competition. i was on both the telecommunication policy task force and i was one of the outside economists advising the department of justice during the mid-1970s when the case was actually being shipped. >> professor hausman? >> i did not come into the
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proceeding until 1982, and thereafter when the antitrust division decided to review it about three years later the effect of the breakup, there was a report that was done, and i was an adviser to the government on the report and then was involved thereafter in the various changes and modifications to the consent degree critic the consent decree. a number of times and reports and testimony. >> professor hausman, were you supportive of the decision? >> well, at the time, with a medium. looking back, i am quite supportive. but it was based on an incorrect theory, and in my view, and i have written academic papers, it probably cost consumers somewhere between $50 billion and $100 billion in payments they should not have had to pay
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because the consent decree was based on the wrong theory. although i quite like judge greene, i once had dinner with him in london, i really doubt a federal judge, no matter how well-intentioned, could really do a good job. he was definitely in over his head. he was not a telecommunications expert. on the other hand, i have always thought the fcc commission probably would not have gotten done and as well as it turned out. in that respect, yes, looking back, i think things have worked out well, of the path was rocky. >> professor in all, were you a supporter at the time? and what do you think 30 years later? but i was deathly supporter of the antitrust case. i agree -- >> i was definitely a supporter of the trust case. i agree with jerry that some of that had no real basis in technology or economics.
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on the other hand, i guess my standard is not as high in the sense that when either a judge or regulatory commission makes a pro competitive decision, that is good news because that is better than what they normally do. so i believe the best pitcher was an important -- i believe divestiture was an important event, one of many because the american telecommunications system, to have its best performance in the world and the reason it is competitive. >> paul? >> professor noll, you mentioned there were some errors that judge greene made. what were some of those errors? >> the premise, judge greene believe something that at&t argued prior to their change of heart to go along with the the best pitcher, which was the weak
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sister of the old bell system was the local operating committees. so when the divestiture, it was silly at this time to go into the details because most are irrelevant today, but what he did, whenever there was a close call, the divestiture decision was something in favor of the local operating companies and against the interests of the long-distance and equipment manufacturing part of at&t. and that was fundamentally a mistake because the premise of the case, as it was developed and litigated, was that it was the interstate park, the long distance telecommunications and manufacturing, that can be competitive and it was the local part that was a secure monopoly, primarily because of the role of state regulation and an old supreme court decision that said the federal government cannot assert jurisdiction over local regulation.
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so i agree with jerry that the premise that judge greene entered, that somehow it was local service that needed to be protected, was completely false. >> there was actually another problem as well, which shows what happens in court proceedings. the government brought the case against at&t in 1976. as i pointed out in some of my academic papers, two things happened in 1976 which fundamentally changed the technology and was going to doom the bell system at the time. that is computer switches, a digital computer switches first came in in 1976. and very much faster transmission equipment came and 1976. that was going to fundamentally change the industry. but because that is when the case was brought, until 1995, when congress got rid of judge greene, judge greene did things based on that technology because that was the record of the case.
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in telecommunications, where change things -- where things change so fast -- and i have my prop, the cellphone, he did his best, but he cannot take into account the changing technology because he did not have the record in the evidence to do it. that was yet another problem. so i certainly agree with roger with respect to the local companies, but what i really saw the main problem was the change in technology. for instance, france at the beginning of the 1990's had a very good internet-based system and the united states to not really get that until 5, 10 years later because of the restrictions and the dissent decree. it certainly pluses and minuses, but i think we agree and has worked out for the best. >> how has the breakup of at&t affected the world we live in today? certainly, we have what some would say a duopoly in network
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access. that is to say the big broadband pipe business. quite a lot has changed since then. how has that break up the fact it the market today? >> i think you have to look at the technology. remember at the time of the breakup, at&t was the largest corporation in the world. that at&t is gone. there is a company called at&t, but it is the old southwest bell operating company, the young bellsouth that bought out at&t. what happens? sort of what roger pointed to. no other country besides the united states when it privatized and allow the communication broke off a long distance company. as of 1976, when you had computers coming in, the old five-level bell system was not going to exist in the future. so the long distance companies are gone.
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mci is but a faint memory, and the old at&t has gone as well. so what has changed? well, there was a huge mistake made at the time of the breakup. mackenzie, which is much in the news the past few days, a well- known consulting company, at the time of the breakup at&t had to make a decision. should we keep our cellular spectrum, which the fcc had given us, or should we let the box have it? they asked mackenzie. mackenzie predicted that as of the year 2000, there would be 1 million users and the united states of cellular telephones. it was a pretty good prediction accept it was off about 99 million. there were actually 100 million by the year 2000. that has fundamentally changed the world, and at&t, although the infected cell phones at bell labs, basically gave up the ghost -- although they basically and vented cell phones at bell labs, basically give up
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the ghost. i would disagree with the lack of competition. people in washington always argue everything. that is how they stay in business. but if you look, the latest government statistics are 32% of people don't even have a landline telephones anymore. they use cell phones. and of people who have landline telephones, about 30% of them have cable telephones. so there is competition out there, and in terms of the internet, 4g is coming in and there is various predictions about what will happen with internet capability. i would predict and 10, 15 years and majority of the use of the internet will be over mobile phones and cell phones through the world. >> i would actually expand that. >> excuse me? >> if you expand that to wireless devices, not limited to sell funds. >> that is what i mean, yes.
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tablets, you name it, exactly. >> i think the really important point about your question is the mindset of the world well into the mid 1990's was that wireline access, with stuff either on poles were buried in the ground was the key to understanding telecommunications. the intriguing part about the wireless story is how very few people inside the industry -- that is why the mackenzie report came out the way it did -- it was not just judge greene and the fcc who did not understand the potential of wireless. it was the entire industry, except a few visionaries who were regarded as kooks. so what turned out to be the case was the hope that some people had that you could have a
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robustly competitive fixed line access industry, or half a dozen companies are offering telephone service over wire, either cables or copper wire pairs of the telephone company, that vision was mistaken. but wireless is really the future of access. and if we can solve the spectrum problem, the spectrum scarcity problem, which the fcc is right now trying to solve, than the almost everything that historically we thought of as being the domain of wires and cables is actually going to be provided over the air. and that industry is robustly competitive. so did the at&t antitrust case have anything to do with this? it had something to do with it, but as i say, its relevance today is not as great as it
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would have been had the original vision of everybody getting telecommunication services through things on telephone poles and buried in the ground, had that been right, it would have been a more important case. >> i would like to make two points along those lines. the first is i completely agree with roger, when the telecom act was passed by congress in 1996, i think it was, the fcc set up regulation to try to bring this type of competition in, although at that time i think it's the that cellular would be very important. and somewhere in the hundreds of millions of dollars, probably much more than that, probably tens of billions, was invested in what was called competitive wireline business. that completely failed. when the tech bust came, those companies dropped like flies and
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the investment turned out to be worthless. not only did a lot of people in the industry not see it, a lot of people investing billions of dollars, they did not see it coming either. but i would actually like to bring up one thing that i don't think the old at&t gets enough credit for, and essentially worries me. if you go back to the cellphone, the tablet, whatever, there are three enabling technologies, and they really have changed the world. the first was the transistor. where was the transistor developed? bell labs. the second was cellular telephones. where was the cellular telephone developed? bell labs. and arguably the third is ready a technology that is used, which is essentially cma. i will give a small plot to mit. that was originally a military use, and then professor jacobs move to san diego and started qualcomm, and that is the
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technology used through the world. but i see as the war rages most u.s. industry does not want to do fundamental -- but what i see as a worry as most u.s. industry is not what to do fundamental research. big innovations like transistors and the cell phones, they only, and very long times, so it is hard to make predictions, but i don't think we ever want to lose sight. many of the enabling technologies, pretty much everything we use today came from transistors in terms of electronics, and it has completely changed the world. so are we going to get innovations like that in the future? that remains to be seen. >> gentlemen, you mentioned the importance of wireless over the past 20 years. one-third of u.s. families have cut the cord. last year, as both of you know, we heard lots of references to ma bell as at&t proposed to
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acquire t-mobile. a lot of people said humpy dump the was being put back together. the doj blocked that, but how many competitors do we need in the market to ensure the public interest? >> that is a tough question because it is always specific to the circumstances of the market that you are studying. it is particularly hard in telecommunication because the technology changes so rapidly. the standard answer most economists give it is somewhere around five firms that are robustly on the fringe of the technology, who are efficient and innovative is the number that would guarantee competitive outcomes. indeed, most of the u.s., nearly all of the u.s. has that many wireless carriers. i am not particularly worried. i think the main issue about the
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reliance on competition and wireless to keep us all happy and innovative is the spectrum issue. the government still sits on an enormous quantity of spectrum that is either an underutilized or not utilized at all. sometime over the next few years, we have to break that loose and create substantially more spectrum that is available to the private sector for use in wireless telephony and telecommunications. i think that will happen, although every time one makes a step, one finds resistance. so i think the single most important policy issue for us the next few years is to make certain the spectrum available for wireless telecommunication is adequate to support the growth of the industry, that consumers and the firms want to take us to. >> i think the spectrum issue it is of foremost importance. i think there was a huge innovation made in 1994.
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myself and others recommend to congress that they start to auction spectrum rather than give it away. one might remember, if you go back and read various books, since roger brought up lyndon johnson, ladybird johnson was given all sport of rigid all sorts of ready a stations. even as late as the 1990's, during the clinton administration, a special deal was given to the washington post to get much cheaper spectrum than other people. the government has always found it difficult to run this as a market. now you have all sorts of government agencies, government bodies that have huge debt problems. local governments are really having difficulty meeting their budgets. and they are sitting on the enormous amounts of specter. and if they switch from analog technology, the generation of
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old technology, to egypt -- to digital technology, they could share that with private users and everybody would be better off. that is what economists want to see. but as roger said, every time we get close, politics seems to enter the fray again. so i am hopeful, but certainly cannot guarantee the problem will be solved. >> i think we do have to be patient, though, because the remember the idea of the spectrum auction came around in the 1950's. it took us only 40 years to get there. >> roger noll is currently at stanford university, the record of stiffer institute for economic policy research. jerry hausman is an economics professor at the massachusetts institute of technology. we're talking about the 30th anniversary of the decision to break up at&t. gentlemen, and we will start with you professor hausman, what
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is the relationship between the 1982 decision by harold greene and is there a relationship between that and 1996 telecommunications act? >> yes, by 1996 it was well recognized that things had gotten out of hand. this technology had changed. a deal was made in large part, and that is out of competition was introduced and became sufficient, then a lot of the restrictions and the descent -- and the consent decree would be eliminated, like long-distance. i made a prediction in 1996 that within teniers the old at&t would be gone. it turned out that i was off by one week. it took 10 years and one week for the old at&t to be gone. so certainly an improvement and had its part in the right place, the telecom act, but it was somewhat behind the technology. the regulations are said to
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favor new entrants, the new entrants came in, invested a lot of money, they all failed, and now it is completely irrelevant. 15 years later, 17 years later, it is pretty much completely irrelevant, but that is due to the march of technology more than anything else, at least in my view. >> professor noll? >> i basically agree with the assessment. at the time it was passed, it is ridiculously complex. it was not a good piece of legislation. we complained about poor judge greene with his lack of sophistication and some of the decisions he made. well, i will take judge greene over congress any day. the act is not very well crafted. nonetheless, the beauty of telecommunications is nobody has it, not the fcc, not congress, not the court has ever made a bad enough decision to stop the march of technology and the places it is taking us.
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so in retrospect, the 1996 act is the single most negative feature is that caused an enormous amount of resources be devoted to regulatory strategy as a means to gain competitive advantage in the industry. it was not sufficiently the regulatory and of and not pro competitive enough. but because wireless technology in particular quickly muted it, it is not doing any significant amount of damage now. >> so is it possible to regulate telecommunications? and if so, should it be done? >> i think it is certainly possible to regulate it. we have 100 years of proof that it is possible to regulate it. the problem is that competition, if it is feasible, is always a preferred strategy to regulation.
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regulation makes enormous sense if technology has dealt a hand that says this industry is not going to be competitive, that you cannot hope to have more than one or two firms, and those firms, given the nature of the market they are operating in, have enormous market power and cannot only extract a lot of money from their customers, but a control technology in nefarious ways that are mainly for their own self interest, as opposed to letting technology blossom to its maximum feasible extent. regulation is something to be done when the market conditions require it, but to be done reluctantly and to be done with as much restraint as is consistent with the policy objective. i think the main criticism all of us who have studied this industry over time has banned. even when the fcc -- has been even when the fcc was allowing competition to increase, was taking off components of the
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industry allowing competition, the process was way too slow. it could have been accelerated more rapidly, it could have been more efficiently handled that was. now, of course, the best is always the enemy of the good, and i still believe that given where we are today, obviously not all decisions were bad. it is just that it took longer than it should have taken, and we should have in mind the notion that given the way technology is today, the industry can provide advanced, enhanced telecommunications services in a competitive market. when that is true, there is relatively little need for regulatory supervision of what goes on in the industry. as i had said several years ago, at this point i think except for managing the spectrum and running spectrum auctions, the fcc should be basically abolished.
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i see no functional use for it today. >> paul, last question. >> i like to answer that as well. >> go ahead. >> i agree with roger, i think the fcc should declare victory on spectrum access to the field because we are very competitive, not bought the only group of people that are held by re- regulation are washington lawyers and lobbyists who deal in regulation. and that is just a distraction. we have one, competition as one. roger and i have always been in favor of that, as most economists are, so i think it is absurd to think of re- regulation. >> professor hausman, who was the biggest benefactor of the breakup of at&t? >> consumers. every time i see students walking around campus, i always think, because they have cell phones and they're listening or talking, i will say, i talk,
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therefore i am. anybody who picks up a cellphone any moment of the day to access the internet, listen to pandora, listen to music, call people anywhere in the world, use skype, and i mean tablets as well, there are the consumers who have benefited the most. if of course, that is what competition is supposed to do. >> roger? >> i agree consumers are the main beneficiaries, but you also have to add the firms that did not exist 10, 15 years ago that are among the elite. that is to say people provide the software and internet-based services that are only made possible by high-speed digital technology -- approval, facebook, whatever. those are also big beneficiaries. -- google, facebook, ought whatever, those are also big beneficiaries. >> paul, roger noll, and jerry hausman, thank you all very much. >> today, marco rubio is the
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keynote speaker at a political fundraiser for iowa republican governor terry branstad and altoona, iowa. this is senator rubio's first trip to iowa since the 2012 election in the has been mentioned as a potential 2016 republican candidate. live coverage of his remarks at 7:30 on c-span. >> former administration advisers give their assessment of the so-called fiscal cliff, a set of tax increases and budget cuts scheduled in january. peter or sacked -- peter orzag was president obama's financial adviser. this is half an hour. >> if the politicians cannot solve the nation's fiscal problems and the tax issues that separate them, maybe the economists can. we have a top group of economists to join us. please grab a seat.
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we're talking about finding common ground on tax reform. i am joined by peter orzag, who was budget director for president obama and is the vice chair of citigroup. we have professor martin feldstein, the top economic adviser to president reagan. and donald marron, the director of the brookings institution. we have three experts to talk about these issues, walk through the minefield of tax policy, and see where there may be common ground. peter, let me start with you. the basic question about whether or not tax revenue has to be part of this conversation to begin with, and whether the two sides, whether there is more common ground than they think? >> firs

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The Communicators
CSPAN November 17, 2012 6:30pm-7:00pm EST

News/Business. People who shape the digital future.

TOPIC FREQUENCY At&t 20, Greene 9, Us 8, Roger 8, U.s. 5, Washington 4, Hausman 4, Noll 3, Jerry Hausman 3, Roger Noll 3, Fcc 3, Facebook 2, Jerry 2, Iowa 2, Harold Greene 2, Obama 2, Lee Harvey Oswald 2, Peter Orzag 2, Mit 2, Paul 2
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